Are SIPPs just too complicated?


News yesterday  that complaints about SIPPs (Self Invested Personal Pensions) are now upheld by the pension ombudsman more than any other financial product.

  • The number of new complaints to the Financial Ombudsman Service concerning Sipps has nearly doubled in the last year
  • FOS stats   show the adjudicator handled 521 new Sipp cases between April and June 2017. This has now risen to 922 for the same period in 2018.
  • the uphold rate in favour of the consumer has increased from 50 per cent to 59 per cent for the latest quarter.

These are alarming numbers, for SIPP managers, advisers, platform managers and most of all for the “self-investors”.

SIPPs matter to advisers

SIPPs have become the standard product for advisers wishing to manage someone’s pension wealth. There is a small but flourishing direct market (Hargreaves Lansdown) but most SIPPs are advised and generate advisory fees that sustain large parts of the advisory market. SIPPs are at the heart of advisory business plans , from SJP to the one person band.

SIPPs matter to investors

To the sophisticated investor, SIPPS give the opportunity to invest from a single platform into a range of funds, directly into equities and bonds and into certain types of property.

They are variously used to pay a retirement income, to provide a capital reservoir and as a means to manage wealth between generations. They are the wrapper of choice for the wealthy to manage and retain their wealth in the most efficient way possible.

Unsurprisingly, the technological innovation in SIPPs is high, with so much wealth to manage, there is a small service industry that has grown up to supply analytics and dashboards. SIPPs even have their own press following (Boring Money, Platforum, Lang Cat et al). SIPP investors can engage with their investments in a way no other investors do.

So why is there such a casualty rate?


Most of us will be familiar with Fisher Investments as they advertise heavily on social media and target the kind of people who read (and write) blogs like this. There is an inference in all their advertising that once you have £250,000+ to invest, you turn into the wealthy investor who needs Fisher’s investment platform.

A £250,000 pot will buy a healthy 60 year old an inflation and family  protected annuity of around £7,000 pa. This is the risk-free income you can expect to enjoy for the rest of your life. In order for people to get more than £7k , they have to take on more risk. If we were to apply the 4% rule, then £250k should be able to buy you £10k pa with a degree of certainty. But there remains a risk that of ruination if you drew down a portion of your pot at a time when the market had dipped, if you lived longer than expected , if some of your self-investments failed.

And this is the start of the slippery slope.

Too many people reach 55 or 60 and are made to feel affluent by advertisements showing them pictures of a lifestyle they are told you can receive if you have £250,000+ to invest.

There is an expectation that a “15 minute retirement plan” can turn such a sum into financial security (yacht and mug included).

This is how people slide down the slope

People who believe that managing their  own retirement fund should remember the words of the financial economist – Bill Sharpe. Here is Bloomberg interviewing him last year.

Consider some of the most challenging problems in finance: the equity-premium puzzle; binomial-option pricing models; do zero interest rates spur inflation or damp it; are stocks cheap or overpriced.

Challenging as those may appear, none compare to what Nobel laureate William Sharpe, 82, calls “decumulation,” or the use of savings in retirement. It is, he says, “the nastiest, hardest problem in finance.”

Just consider that this is coming from the man who figured out how to price portfolios via the capital-asset-pricing model, and how to measure risk via the “reward to variability ratio,” or what has come to be known as the Sharpe ratio.

Since 2009, Sharpe has been an advocate of “adaptive asset allocation” strategies, which seek to exploit recent market behaviour to optimise asset allocation and thus maximise returns and reduce volatility.

Do we really expect people to learn how to emulate Bill Sharp in 15 minutes?

Risks ahead.

Much of the language I hear from advisers and SIPP managers – suggests that they are talking down the nastiest hardest problem in finance and talking up the capacity of funds to avoid your running out of money in later life.

It would seem, from the increasing numbers of SIPP policyholders going to the Financial Ombudsman and the high proportion getting their complaints upheld, that people are not being properly appraised of the risks ahead.

The nastiest, hardest problem in finance does not go away , because you have an adviser, a dashboard and comforting brochures.

Are SIPPS too complicated?

I use this picture from the FCA to show how complicated the management structure of a SIPP has become. What was originally conceived by the likes of John Quarrell and John Moret as a way of disintermediating the financial services industry, has become one of the most intermediated products anyone can buy.


The cost of this intermediation adds up


1% for the adviser

0.5% for the platform

0.1% for the provider

0.1% for the administrator/operator

0.5% for the discretionary fund manager

1% for the asset manager

0.25% for the fund administrator/custodian.

? for the hidden transaction costs not included in the asset management and custodian fees.

These are real life fees and they could add up to the 4% pa, that is a typical “drawdown” recommendation. For the sake of “outraged IFAs” – other charging structures apply and many SIPPs do offer Value For Money – especially for those with larger pots.


Unless an investor is able to truly self invest and not pay the advisory fee, have the financial clout to manage down administration, custody and platform fees and have the good sense to stick with investments (rather than create risk of further transaction costs), then these can be the scale of costs involved in managing your own pension through retirement and to death.

The risks for those who do not want to manage themselves of a self-invested personal pension, increase with time. Over time, advisers retire, leave the industry or die. Often their advisory fees continue – well after the advice has dried up. Turning off the advisory drip feed isn’t easy, getting a new adviser isn’t easy either, managing a portfolio seamlessly through the transition isn’t easy either.

As we grow older , we find it harder, not easier to make the right financial decisions. Our capacity to manage our investments into later life may reduce (it’s called cogitative impairment). We will only become more reliant on others as our mental faculties reduce.

For the top-slice of the mass-affluent, those who really know what they are doing and can afford to buy advice when needed, SIPPs are the right answer.

But I question if they are the right answer for the majority of people looking at adverts from Fisher and others.

I think the Financial Ombudsman might feel the same way.

poll bsps anon

An early Facebook Post from  BSPS “Time to Choose”

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , , , , . Bookmark the permalink.

7 Responses to Are SIPPs just too complicated?

  1. George Kirrin says:

    A personal view, Henry, but are we confusing SIPPs with AIPPs (aka apes, but more seriously some sort of fiduciary managers), or maybe for others bring back trustees with TIPPS?!

    Surely the SI part stands for “self-invested”? Anything else sounds to me like a different product.

  2. John Hutton-Attenborough says:

    Henry, I think you will also find that many of the SIPPs which have gone wrong have been similar to the experiences of the BSPS members. Unscrupulous “facilitators” (I can’t call them advisers!) positioning scams as investments which could only be held within a SIPP and the members not having the right level of protection along the way from regulated advisers/ SIPP administrators/ Pension trustees and potentially the regulator as well. In the right hands they are a very useful retirement planning tool but in the wrong as with many products over the years they can be disastrous.

  3. Thornton says:

    It really depends how we define a SIPP. Originally they were aimed at offering the flexibility of a SSAS to those without a limited company but have gradually become more mass market.
    In many cases SIPPs seem to be used for consolidation exercises purely because they are ‘fashionable’ (or have been) with the underlying investments no different to those accessible in a more simple structure.
    I would argue that the true SIPP for the right clients is still invaluable, for example holding commercial property in a SIPP can be simple and cost effective. However as highlighted above they have allowed the unscrupulous ‘introducers’ to access pension funds for those who should definitely have stuck with their DB or employer schemes. The tide seems to be turning against SIPP providers that have taken no responsibility for the appropriateness of assets held.

    • Geoff Buck says:

      Quite right. Fully support your comments. Incidentally the FCA info graphic isn’t correct. Not all providers will provide the services the FCA suggests.

  4. A few facts.
    A SIPP is just a wrapper. A low-cost SIPP can just as easily be used as a wrapper for an asset allocation strategy using low-cost investments as a wrapper for complex investments (even if that was its original raison d’être). Your FCA exhibit just tells you the different ways different agents and clients might use a SIPP in an overall structure. They tell you nothing about the SIPP per se. And drawdown is a red herring. It does not require a SIPP.

  5. henry tapper says:

    You are right in theory Stuart, but the problem is that SIPPs are being used for drawdown and that many SIPPs are not fit for that purpose. There is a question here about state intervention – a charge cap – a default way to spend the money (as well as save it). My contention is that left to their own devices, many operating SIPPs will over-complicate to the detriment of consumers.

Leave a Reply